MCB recently launched its first in-house Sustainable Loan, a credit line of Rs 10 billion at a preferential rate of PLR-1%, available to local businesses. The line of credit aims at financing a wide range of projects in the Environmental, Social, and Governance (ESG) category. Xavier Bathfield, Head of Mauritian and Regional Corporates, and Dominic Provençal, Head of Business Banking at MCB, say this sustainable loan has the potential to give a new impulsion to sustainability in Mauritius.
PLR-1% is a great rate at which to lend money to businesses. What motivates MCB to push out the green envelope?
Dominic Provençal (DP): We've been advocating a shift to a greener economy since we launched our strategy, Success Beyond Numbers, in 2018. Five years down the line, this sustainable credit line is a logical next step, especially after the conclusion of the SUNREF Green Loan, which we've been disbursing for the past few years. We also believe that the time is ripe, that our Sustainable Loan is the right product-market fit, and that businesses have matured enough to be ready for the sustainable shift.
Xavier Bathfield (XB): Projects concerned with this credit line typically involve new and sometimes expensive technologies that may require more extended payback periods. From a client perspective, it is quite difficult financially to invest in sustainable projects if all they have access to is a traditional business loan. That's why the preferential rate and the flexibility we're offering matter. We want to encourage the shift to more sustainable business models and believe that the success of such projects should not be based solely on numbers. We have to incentivise the ecological transition and are willing to contribute to building a better Mauritius.
What types of projects are we talking about?
XB: The taxonomy (types of projects) is extensive, making it unique but aligned with industry standards. The aim is to finance as large a palette of sustainable projects as possible. We're telling our clients, look here: there's more to green than green. We mean that there are many ways to be sustainable: renewable energy, climate change adaptation, sustainable water and wastewater management, circular economy, etc. Every effort a business in whichever sector makes to reduce its carbon footprint or become more resilient to the impacts of climate change potentially qualifies them for the loan. As we've seen with cyclone Freddy and its impacts on our beaches and hotels, more resilience is urgently needed.
DP: There are over ten eligible categories, so we're also talking about projects that prevent and control pollution, projects like reforestation, rehabilitation of mangroves, beach rehabilitation and the preservation of marine biodiversity, climate change adaptation projects – you name it. As long as it positively impacts the environment or society and is backed by solid business ethics, it's eligible for our line of credit, which has recently been topped up from Rs 5 to Rs 10 billion.
Dominic Provençal and Xavier Bathfield
Is the Sustainable Financing line responding to clients' needs, or is it rather an agenda that MCB wants to push?
DP: There's definitely a demand for this product. We already have some 20 projects under consideration. Many of our clients already have the right structures or mindset for sustainable business, and there is a variety of projects. It's now a matter of financing those projects. Sustainable ventures are, by nature, long-term projects that need long-term financing, whereas historically, our products were more focused on the mid-term. This time, we're prepared to go the whole nine yards with our clients and will be financing some developments for up to 15 years. These ventures only become viable with time, and if businesses don't have adequate funding that considers the project's specificity and long-term benefits, they won't go forward with it. This is also based on client feedback – to walk the sustainable path, they needed a bankable solution, not a classical one.
XB: There's also a commercial aspect to it. For many of our clients, their own stakeholders are applying pressure for sustainable change; sustainable businesses attract clients, investors, and capital, and a whole ecosystem is moving towards sustainability and gaining traction. Sustainability is becoming a competitive edge. And if one business is not prepared to change, somebody else will. The same goes for energy transition; the current price of coal and heavy oil have forced governments to revise their energy mix, and the time to invest in renewable energy is now. In fact, the first project approved under this line of credit is the GreenYellow project for solar energy production.
What's the end game?
DP: To have a greener economy than we have today, to help businesses produce and prosper differently. Our economy is currently on the brown side – import-oriented and heavy carbon emissions, even if our contribution to emissions is minimal in the bigger scheme of things. We are an insular island and are very dependent on and heavily impacted by what happens elsewhere. However, that doesn't mean we shouldn't try to make our business models more sustainable to make our economy more resilient. A more sustainable economy will have beneficial impacts on society and ensure that businesses remain relevant in these uncertain times.
XB: At MCB, we want to lead the way to this more sustainable economy. Thanks to the comprehensive taxonomy, we want to inspire businesses that might not have thought they could change their business models. We want to tell them that they can make a difference and that we're happy to discuss the viability of their projects.
If there are enough of those projects, they could end up changing the economic landscape of Mauritius in time. How do you feel about that?
XB: The beginning of a project is always challenging, but it'll be amazing to see the impact of some of these projects we'll be financing in the next five years or so. I'll be very proud of our contribution to a sustainable Mauritius.
DP: I am a bit apprehensive since it's a new product but equally excited because we're creating a new dynamism and giving a new impulsion to our sustainability strategy, Success Beyond Numbers.